Method of sale refers to how a bond is sold when originally issued. There are three methods of sale:
· In a competitive sale, underwriters bid on the bonds, and the bonds are awarded to the bid that will result in the lowest borrowing cost to the issuer.
· In a negotiated sale, the issuer chooses an underwriter in advance. The issuer and the underwriter then negotiate the bonds’ interest rates, call provisions, and purchase price, among other things.
· In private placement, bonds will not be offered to the general public, but are sold directly to a single investor or a small number of investors, such as a bank.
Local governments selling up to $2 million of capital outlay notes may also use an informal bid process. After obtaining approval from the state Comptroller’s Office, the local government contacts at least three banks, if possible, to receive quotes for interest rates on the notes.